Tax Type
Retail Sales and Use Tax
Description
Transit Companies established as public service corporations
Topic
Exemptions
Date Issued
12-22-2004
December 22, 2004
Request for Ruling: Retail Sales and Use Tax
Dear *****:
This is in reply to your letters of November 17 and November 23, 2004, in which you request a ruling as to the effects of the recent repeal of the sales and use tax exemption for public service corporations on the following companies: *****, *****, ***** and ***** (hereinafter "Transit Companies").
FACTS
The Transit Companies were all established as public service corporations for the purpose of providing mass transportation service in their respective localities. With the passage of House Bill 5018 (Chapter 3, 2004 Acts, Special Session I), the Retail Sales and Use Tax exemption applicable to motor vehicle common carriers of passengers was repealed effective September 1, 2004. The Transit Companies are requesting a ruling that there are other statutory exemptions or authorities that would provide continued sales tax exemption to the Transit Companies.
The Transit Companies were organized for the purpose of providing public transportation within a specified geographical area. In order to obtain federal funding, the local governments set up the Transit Companies as incorporate stock corporations. With the exception of *****, all of the Transit Companies have obtained exemption status from federal excise tax under § 4221(a)(4) of the Internal Revenue Code. The majority of the funding for the Transit Companies is derived through local general funds, and state and federal transportation funds, with the remaining funding obtained through rider fares.
The Transit Companies believe that the repeal of the exemption under HB 5018, for motor vehicle common carriers, was not intended for uniquely organized companies such as the Transit Companies. The Transit Companies contend that in the absence of the exemption for motor vehicle common carriers previously available under Va. Code § 58.1-609.3(3), they qualify for the exemption under Va. Code § 58.1-609.1(4).
Va. Code § 58.1-609.1(4) provides a sales and use tax exemption for:
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- Tangible personal property for use or consumption by the Commonwealth, any political subdivision of the Commonwealth, or the United States. This exclusion shall not apply to sales and leases to privately owned financial and other privately owned corporations chartered by the United States. Further, this exemption shall not apply to tangible personal property which is acquired by the Commonwealth or any of its political subdivisions and then transferred to private businesses for their use in a facility or real property improvement to be used by a private entity or for governmental purposes...
Based upon state and federal caselaw, the Transit Companies request a ruling that they qualify as "political subdivisions" of the Commonwealth; thus they qualify for the sales and use tax exemption under Va. Code § 58.1-609.1(4).
RULING
Virginia Code § 58.1-609.1(4) provides an exemption from the retail sales and use tax for "[t]angible personal property for use or consumption by the Commonwealth, any political subdivision of the Commonwealth, or the United States."
The Transit Companies are organized as public service corporations separate and distinct from the local governments that created them. The Department has consistently held that a nonprofit corporation, even when controlled by the Commonwealth or one or more of its political subdivisions, is a separate legal entity and is not entitled to the sales and use tax exemption in Va. Code § 58.1-609.1(4) [See P.D. 95-82 (4/17/95) and P.D. 85-4 (1/22/85)]. This issue was previously addressed by the Department's ruling in P.D. 89-103 (3/23/89) (copy enclosed). As the official charged with administering the Virginia Retail Sales and Use Tax Act, I am not persuaded that the Transit Companies qualify as "political subdivisions" of the Commonwealth for purposes of the exemption granted under Va. Code § 58.1-609.1(4). While such Transit Companies may be considered instrumentalities of several political subdivisions, they are not political subdivisions for this purpose.
The Department's position is furthermore supported by an August 23, 1976 opinion of the Attorney General (Va. Att'y Gen. Op. 305 (Aug. 23, 1976)) relating to a public service corporation that is similar to the Transit Companies in its manner of organization and operation. This opinion, copy enclosed, held that a transit company organized by a city was in fact independent of the city and that the revenues of the company were not public funds.
The Department's policy with respect to exemptions from the sales and use tax is dictated by the rule of strict construction established by the Virginia courts. The Virginia Supreme Court has consistently held that "exemption from taxation is the exception, and where there is any doubt, the doubt is resolved against the one claiming exemption." [Golden Skillet Corp. v. Commonwealth, 214 Va. 276, 199 S.E.2d 511 (1973)]. In the present case, applying the rule of strict construction with respect to Va. Code § 58.1-609.1(4), the Transit Companies are not considered a political subdivisions of the Commonwealth and therefore, do not qualify for this exemption.
Based on all of the above, I find that there is no authority under which to grant the Transit Companies continued sales and use tax exemption status. If you should have any questions concerning this ruling, please contact *****, Office of Policy and Administration, Policy Development at *****.
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- Sincerely,
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- Kenneth W. Thorson
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- Tax Commissioner
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- Kenneth W. Thorson
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PD/53412K
COMMONWEALTH of VIRGINIA
Department of Taxation
Department of Taxation
TO WHOM IT MAY CONCERN:
Under the authority of §§ 58.1-1 and 58.1-110 of the Code of Virginia, I hereby delegate to Gerald Gwaltney, Deputy Tax Commissioner, the authority to sign for me, in my absence, any and all documents, including, but not limited to, affidavits, warrants, rulings, appeals, offers in compromise and sales tax revocations.
This authority shall not extend to matters or documents related to my service on any statutorily created board or commission, including, but not limited to, the Compensation Board and Treasury Board.
This authority shall become effective January 10, 2003, and shall remain in effect until revoked.
Done at Richmond, Virginia, this 13th day of January 2003.
Kenneth W. Thorson
Tax Commissioner
Acknowledgement: Gerald H. Gwaltney Date:
Done this 13th day of January 2003 in the City of Richmond, State of Virginia. My Commission expires 9-30-2003.
Notary Public: Sylvia J. Wesson Notary Seal:
Rulings of the Tax Commissioner